Finance Commission
15th Finance Commission concludes its two-day visit to Mumbai
There is an excellent opportunity for rationalization and simplification of Centrally Sponsored Schemes: Chairman, Finance Commission
The 15th Finance Commission addressed the media in Mumbai today, briefing them about the discussions that took place in the Commission’s meetings with RBI, banks and eminent economists during the Commission’s two-day visit to the city during May 8 – 9, 2019.
Stating that the visit of the Commission was very productive, the Chairman said:
“The meetings have sharpened the Commission’s understanding on some of the key things that need to be kept in mind for continued macroeconomic stability. A careful examination was made into the issues of debt, particularly as stated in the RBI’s Annual Report on State Debt Figures. The overall debt picture of the states and the way they have complied with the ingredients of the Macroeconomic Management Bill is being looked into closely. This is an area we have had very useful discussion.
Some states are financially well-managed, others financially poorly managed. What are the mechanisms by which the market makes its voice felt in terms of the cost of borrowing and differentiate between better-governed states and not-so-well-governed states, especially given that states are increasingly resorting to market borrowings? This was explored through possible mechanisms such as encouraging credit ratings by states. While doing this, we also explored, particularly in light of the FRBM Report, as to what mechanisms can be further strengthened so as to enable the Central Government to conform to the targets it has laid for itself. The last five years has witnessed a Government which was quite committed to adhering to the fiscal deficit targets.
We also looked at more specific granular problems such as reconciliation of data, improving quality of statistics and data, and reliability and uniformity of data for enforcing greater fiscal discipline. Some very interesting ideas have come up, which we would deliberate upon.
What is the future of Centrally Sponsored Schemes ? The Central Government spends 3.5 lakh crore rupees per annum on these schemes. Past attempts at rationalizing these schemes have met with modest success. Earlier, the lifecycle of CSSs was coterminous with that of the Five Year Plans; they were hence subject to the mid-term appraisal of the Plan. Now, since there are no Five Year Plans, and hence no mid-term appraisal, the Central Government decided that it will now make the lifecycle of all CSSs coterminous with that of every Finance Commission. This year is the last year of the existing CSSs, before which they will move to the new cycle which will kick in as a result of our recommendations. From the viewpoint of the Central Government and others, this is an excellent opportunity for rationalization and simplification of CSSs. This is one area which is being deliberated upon.
The Finance Commission receives 30 Memorandums, one from the Central Government and 29 from each of the 29 states/UTs. We are awaiting the Memorandum of the Central Government, which we hope to receive soon, after which we will see what can be the appropriate vertical distribution of revenues between the Centre and the states.
The Commission has already visited 20 out of the 29 states. Visits to the remaining states will commence after the Model Code of Conduct period is over.”
Here are a few excerpts from the responses given by the Chairman to the questions posed by the media.
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The issue of RBI’s reserves dealt by Bimal Jalan Committee report was not and should not have been discussed in depth by the Finance Commission and the RBI. This is an in-house matter of the RBI. In passing, it was mentioned to us that the Bimal Jalan Committee is in a fairly advanced stage of its deliberations.
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We will await a Memorandum of the Central Government as regards the recapitalization of PCA Public Sector Banks, since the obligation for recapitalization will rest with the Central Government, and it will be for them to project the likely expenditure for the relevant period, through a Memorandum to the Finance Commission.
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We are closely looking at what kind of disaggregated growth, debt and fiscal deficit trajectory would be practical to attain the overall objective of the General Government’s debt and fiscal deficit being consistent with FRBM targets and yet within the bounds of practicality.
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We would like to capture the debt figures, the public sector borrowing requirements and contingent liabilities so that we get a true and holistic picture of the debt scenario. We have had discussions with RBI regarding this, and this is one area into which the Commission will be giving some attention.
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The projections given to us by the Department of Revenue suggest very healthy buoyancy in direct taxes. Projections of indirect tax collections, especially with regard to GST, have not been as healthy. We are going to have another round of discussions with Department of Revenue based on the latest figures of the improvements in GST behavior and what changes can be made to make it more buoyant, stable and predictable.
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We ourselves are going to undertake a process of economic data reconciliation among the CAG, the RBI and the data which we have received from the Ministry of Finance and other sources, so that we can make conclusions based on what we would consider reliable data in public domain. This has nothing to do with the methodology or the computation of the data, but we are seeking reconciliation among the multiple sources of data. This reconciliation will be within the bounds of acceptable and appropriate prudence to be able to do so.